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The Football Transaction

Criminals are increasingly using football for money laundering and tax evasion, helped by the globalization of the sports and financial needs of the clubs around the world. FAFT (Financial Action Task Force) stated that football clubs are indeed seen by criminals as the perfect vehicles for money laundering. The international governing body of the football industry is the F??d??ration Internationale de Football Association (FIFA). FIFA's purpose is to promote and develop football throughout the world. FIFA also is the guardian of the regulations of the game. FIFA consists of six confederations (AFC, CAF, CONCACAF, CONMEBOL, OFC and UEFA) which are the umbrella organizations for the national football associations. Despite of the scale, with 38 million registered players and 5 million referees and officials, the football clubs are acquired by investors ranging from 'super rich' people and businessmen to criminals who want to become popular celebrities by associating themselves to the players. Clubs are less likely to report money laundering to maintain the sport's image. This market is easy to penetrate as there are low entry barriers. The sector deals with large cash flows and large financial interests which makes it easier for money laundering. Last but not the least the sector's culture plays an important role as well. The illegal activities are therefore not reported to maintain the sport's image. A few recent cases like Neymars transfer to Barcelona which involved illegal money transaction, came into light. It is important to take steps to reduce the money laundering which can be done by spreading awareness, improving governance, financial transparency and taking serious actions against the defaulters.

INTRODUCTION
'Sport is confronted with new threats and challenges, such as commercial pressure, exploitation of young players, doping, corruption, racism, illegal gambling, violence, money laundering and other activities detrimental to the sport.' ' Commission of European Communities.
Football sector has been an attractive destination for money obtained from criminal sources, money laundering in this sector has reached new levels of sophistication. An anti-corruption body stated that criminals are increasingly using football for money laundering, which is helped by the globalization of the sport and financial needs of the clubs. Just like any other business, sports can be used by criminals to launder the proceeds of crime or the perpetrate illegal activities for financial gain. It is not always just money that attract the criminals to sports. Social prestige is also a factor for the criminals to become popular 'celebrities'. This can be done by associated with famous people and moving upwards to powerful circles within established society. Referees and players can take bribes to fix matches. Club owners can demand kickbacks for player transfers.
Companies and governments can rig bids for construction contracts. Organized crime is behind many of the betting scandals that have dented sport's reputation. And money laundering is widespread. This can take place through sponsorship and advertising arrangements. Or it may be through the purchase of clubs, players and image rights. Complex techniques are used to launder money through football and other sports. These include cross-border transfers, tax havens and front companies.
WHY IS FOOTBALL A CANDIDATE?
Football is one the biggest sport in the world. It is played all over the world and considered to be the most popular sport in many countries. It has about 38 million registered players and 5 million referees and officials. Ranging from loyal fans attending weekly matches for their clubs to spectators at home in front of their television screens. Sources reveal that the FIFA World Cup Final in 2006 attracted over 1 billion viewers. With the increasing economic impact and social functions, football has changed from being just a popular sport into a global industry. 'Football can serve not only as a source of income for many people, but also as a tool for local economic development, social cohesion, education, personal development and the transmission of human and cultural values.'
Money laundering is the process by which proceeds of crime are changed so that the proceeds appear to have come from a legitimate source. The proceeds of crime can be money, or other assets, that have been acquired or generated through criminal activities. There are three main areas of vulnerability in the football sector which can be identified:
' The sector's structure ' The market is easy to penetrate due to low barriers to entry; the sector is complex and characterized by opaque networks of stakeholders and interdependence between the different actors; management often lacks awareness of these issues; and the diversity of legal structures
' The sector's finances ' The sector deals with large cash flows and large financial interests; the seemingly irrational nature of the sums involved and unpredictability over future results; many football clubs and organizations are currently in weak financial situations and vulnerable to offers of high sums of money
' The sector's culture ' The social vulnerability of players; the societal role of football whereby people are reluctant to shatter the illusion of innocence in sport and therefore illegal activities are often not reported; and the attractiveness of non-material rewards to criminals (i.e. status)
FOOTBALL GOVERNANCE
Organizational bodies
The international governing body of the football industry is the F??d??ration Internationale de
Football Association (FIFA). FIFA's purpose is to promote and develop football throughout the world. FIFA also is the guardian of the regulations of the game. FIFA consists of six confederations (AFC, CAF, CONCACAF, CONMEBOL, OFC and UEFA) which are the umbrella organizations for the national football associations. Professional and amateur football clubs are members of their national football associations. National associations must be members of both FIFA and the confederation in which their nation is geographically resident for their teams to qualify for entry to FIFA's competitions. FIFA has in total 208 member associations (one per country). The whole industry is built on two main pillars: club football and national team football. UEFA is one of the biggest of the six confederations of FIFA. It is by far the strongest in terms of wealth and influence over the global game. Virtually all of the world's top players play in European leagues. This is in part due to the salaries available from the world's wealthiest football clubs, particularly in England, Germany, Italy and Spain. Two of the top seven teams in the FIFA World Rankings are nevertheless CONMEBOL members (Brazil and Argentina). At a lower level, the FIFA confederations like UEFA consist of national associations, of which the English Football Association, founded in 1863, is the oldest. The national associations of each country operate league systems, normally comprising several divisions. The national associations are the supreme regulatory and disciplinary body of the sport within national boundaries. Their autonomy however is restricted to the fact that they have to abide by the rules of FIFA and the six confederations like UEFA and CONMEBOL. In some countries the football sector is organized in regional associations on a lower level. The individual clubs - according to FIFA - are the basic cell at the foundation of the pyramid.

Football Finances
Considering these money flows, several important financial actors in the football industry can be identified: the clubs (basic cell of the industry), football players (most valuable assets of the industry), corporate sponsors (in most levels most important investor), media (especially powerful in top-league football), individual investors (club patrons), local business clubs or talent pools (investing in a club or in the acquisition of individual players), football agents (acting in the interest of the player or as an intermediary on the transfer market), (local) governments (subsidizing clubs, acting as a lender of the last resort, sometimes owner of the stadium complex), tax authorities (in some cases a failing club will delay meeting its tax obligations in the hope of avoiding liquidation), real estate proprietors (stadiums are not always owned by the clubs or local government). In addition associations or leagues can act as regulators as well and sometimes operate financial clearinghouses for transfer payments. In some countries, supporters provide large amounts of cash and have an influence over club owners, the management and supplying businesses as well as, in a small number of cases being allegedly linked with organized crime. If there is fraud, corruption, tax evasion or money laundering it takes place within the complex network of relations between these actors.

Clubs have large financial needs and considerable sums are often involved in transactions. This is especially the case in the international transfer market, where there is little or no control over the origins or destination of monies.

Fig: 20 most valuable players in Europe
Source: http://www.dailymail.co.uk/sport/football/article-2647600/Luiz-Suarez-worlds-expensive-footballer-79million-Lionel-Messi-cost-DOUBLE.html
A number of financial transactions fundamental to the operation of a football club have the potential to be abused by money launderers, for example:
' Player transfers
' Sponsorship or advertising arrangements
' Purchasing land or buildings
' Sub-letting of land or facilities
' Licensing arrangements with traders at the premises
' Third party investments

Fig: Transfer league's table shows the purchased gross and the net profit
Source: http://www.dailymail.co.uk/sport/football/article-2553796/Proof-money-buys-happiness-Manchester-City-Chelsea-Manchester-United-net-spend-charts.html#ixzz3B3WWsBoA
A considerable stream of a club's week-by-week revenue comes from cash-based ticket sales, and revenue from year-to-year is highly dependent on results. This includes media rights income, advertising income and ticket sales. To a certain extent, this unpredictability of future assets provides an incentive for clubs to seek out alternative financial sources, such as short term cash investments. PAST CASES OF MONEY LAUNDERING IN FOOTBALL
One of the lesser known aspects of spot fixing scandal players in the Pakistan cricket team is that Mazah Majeed, the ringleader agent who offered the money to the players to spot fix, has been quoted as saying the 'only reason' he bought non-league semi-professional football club Croydon Athletic in 2008 (becoming the owner) was to launder money made from match fixing. Investigations are continuing into the clubs finances and their financial health, which is a real and continuing concern. The stresses of this situation were tragically illustrated when then Chairman of the club David Le Cluse, who claimed to know nothing about the money laundering, took his own life.
The second example came to light at the end of November when Portsmouth FC's ultimate owner Russian Vladimir Antonov was arrested by UK police under an extradition warrant over a money laundering investigation in connection with the nationalization of Snoras Bank in Lithuania. Mr Antonov owns a controlling stake in the bank which had to be nationalized after regulators discovered a huge asset shortfall owing to alleged fraudulent activity. Fans and other stakeholders have been assured 'that it remains business as usual' but only time will tell.
How did Neymar's Barcelona transfer fee jump from '57m to '95m?
Barcelona have come under the limelight for their actions in the Neymar transfer. Club president Sandro Rosell stepped down last month after a club member filed a complaint accusing him of misappropriating funds. Rosell has denied any wrongdoing but said he wanted to clear his name and protect the Spanish champions' image.
Following his resignation, Rosell admitted that the Neymar transfer had cost 82.6 million euros, and not the 57.1 million that was initially reported. The extra costs include payments to Neymar and his family.
According to the El Mundo report the '95 million deal included '40 million for the Neymar, '17 million to his former club Santos, '7.9 million for the right to three young Santos players, '9 million for a friendly between the teams, '8.5 million in commissions to Neymar's father, '2.6 million in agent fees and another '10 million for a signing bonus.
With the scandal public, a Spanish judge allowed prosecutors last week to charge the club with tax fraud, saying they cheated the state out of 9.1 million euros through payments to various companies and false contracts. The court had also sought Barcelona's tax records related to the player transfer, and asked tax authorities to determine the scale of the alleged fraud.
This event mentioned above is one of the cases where money laundering has taken place at club level. There have been more sophisticated events in the past, but the amount of money that underwent transactions was heavy. The case was so ignited that the president of the club had to resign. In spite of the fraudulent nature of the case, the actual money laundering scenario was not highlighted to maintain the image of the club.

NECESSARY SYSTEMS AND CONTROLS
The report identified well-known money laundering techniques varying from very basic to complex and sophisticated schemes. These include trade-based money laundering, the use of non-financial professionals, money laundering through the security sector, the real estate sector and the gaming sector, as well as using cash, cross border transfers, tax havens and front companies.
Football clubs must be at the top of their game if they wish to have sufficiently robust systems and controls in place to prevent money laundering or handling the proceeds of crime. As a starting point, professional and semi-professional clubs need to be aware of the implications of, and their obligations under, the money laundering legislation, particularly POCA and the MLRs. Clubs should be aware of the risks, what they should look out for, how to deal with any suspicions and what happens if the club or its employees get it wrong. Employees and players should understand their own responsibility in the process of fighting illicit activities.
Much can be done to break the ties between sport and corruption. But we need to get everyone involved to work together. Openness in decisions and policies is vital. Governments must work closely with the international gaming industry and anti-fraud organizations. Then they can follow the money in betting. Sporting organizations can write anti-corruption measures into their constitutions and codes of conduct. And clear regulations and openness in player transfers will protect the employment market. But we must make sure rules are actively enforced.
Open, competitive bidding processes will help prevent corruption when host cities or venues are chosen for sporting events. They're also essential in bids for major projects, such as building stadiums. Bids need to be monitored to make sure they're fair. Sponsors can play their part by promoting ethics in sport as part of their corporate responsibility programmes. The media also has the power to raise awareness about corruption in sport. With these changes to the rules of the game, the sector can regain its reputation for fair play.
CHANGES THAT CAN BE BROUGHT IN THE EXISTING SYSTEM
In order to effectively guard against the risks associated with potential money laundering or the handling of the proceeds of crime, clubs should review their existing systems and controls and, where appropriate, consider the following:
' Appointing a senior manager to be responsible for money laundering issues, (a Money Laundering Reporting Officer) (MLRO)
' Increasing employee awareness of the relevant legislation and training employees to identify potentially suspicious transactions
' Implementing internal controls on transactions so that employees have appropriate and limited authority to bind the club
' Maintaining up to date records of transactions
' Identifying business partners and carrying out enquiries prior to transactions
' Co-operating with other clubs in their information exchanges
' Monitoring customer activity
' Reporting any suspicious activity
However, such safeguards and measures should be applied proportionately. In the context of transactions, clubs should ensure that they know:
' Exactly who they are dealing with
' How the party legitimately acquired the land/property they are dealing with
' How the purchaser/investor/trader/agent found the funds to pay the club
These considerations are particularly relevant in the context of international transactions where intermediaries are involved and international cooperation is the key. Given the international dimension of the football sector, difficulties in international exchange of information and the use of tax havens are a major stumbling block in the detection and prosecution of money laundering through the football sector. Going forwards, clubs operating in different countries need to work co-operatively to identify and combat the use of the football sector for money laundering purposes.

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